Appeal from so much of a judgment of the United States District Court for the Southern District of New York, Edward Weinfeld, Judge, as released $6,300,000 in interpleader fund to secured creditor whose U.C.C. Article 9 financing statements lapsed during pendency of action. See 652 F. Supp. 542 (1987). Affirmed.
Timbers, Kearse, and Pierce, Circuit Judges.
In this interpleader action pursuant to 28 U.S.C. §§ 1335 and 2361 (1982), defendant BP North America Petroleum Inc. ("BP") appeals from so much of a final judgment of the United States District Court for the Southern District of New York, Edward Weinfeld, Judge, as awarded $6,300,000 of the interpleader fund to defendant Banque Paribas ("Paribas") instead of to BP. The court recognized Paribas's claim on the basis of a security interest perfected by Paribas pursuant to the Uniform Commercial Code ("U.C.C.") prior to the filing of the interpleader action and prior to BP's acquisition of its lien on the property. BP contends that the court should have awarded the $6,300,000 to BP because Paribas allowed its U.C.C. filing statements to lapse during the pendency of the interpleader action, thereby subordinating Paribas's interest to that of BP. For the reasons below, we affirm.
The facts are not in dispute. In May 1986, interpleader plaintiff Avant Petroleum, Inc. ("Avant"), owed debts totaling some $16,000,000 to Crysen Trading and Marketing, Inc. ("Crysen"), for petroleum purchases. At that time, both Paribas and BP had claims against Crysen's assets.
On July 31, 1981, Crysen had entered into an agreement giving Paribas a general security interest in all Crysen assets, including accounts receivable. Paribas perfected its security interest in accordance with applicable state law by filing U.C.C. financing statements in New York on August 10, 1981, Texas on August 11, 1981, and California on September 4, 1981. Under U.C.C. § 9-403(2), each filing was effective for five years.
In April 1986, BP instituted a breach of contract action against Crysen in Texas state court and obtained an order for a writ of garnishment providing, inter alia,
that the maximum value of property or indebtedness that may be garnished is $5,560,000.00. Further, the writ shall command the Garnishee [Avant] NOT to pay Crysen any debt or to deliver any effects to it, pending further order of this Court.
The writ was served on Avant on or about April 23, 1986.
On May 16 and May 20, 1986, Avant commenced interpleader actions in the Southern District of New York, asking the court to resolve the competing claims of Paribas, BP, and Crysen to debts of $13,385,925.76 and $2,763,816, respectively, that Avant owed Crysen. The court ordered that the funds be deposited into the registry of the court, and the two actions were consolidated.
In July 1986, all parties stipulated that $6,300,000 would suffice to satisfy BP's claim, including interest, and that the remainder of the interpleader fund should be paid to Paribas. Their stipulation was approved by the court on July 8, 1986, and the bulk of the interpleader fund was therefore released to Paribas. This left for adjudication only the competing claims of Paribas and BP to the remaining $6,300,000.
In August and September 1986, while the interpleader action was pending, Paribas's five-year U.C.C. financing statements, filed in 1981, lapsed. Paribas neglected to file new financing statements until November 1986. After the new filings, BP moved for summary judgment in its favor. Though conceding that at the time the interpleader actions were commenced in May 1986 Paribas's perfected security interest was superior to BP's judicially created lien, BP contended that under the so-called "retroactive unperfection" provision in U.C.C. § 9-403(2), the filing lapses had caused Paribas's interest to become subordinate to BP's lien. Paribas cross-moved for summary judgment in its favor, contending that the unperfection provision was irrelevant and that its claims had priority.
In an opinion dated January 28, 1987, Judge Weinfeld granted Paribas's motion. Noting that the issue appeared to be one of first impression, he held that, given "the nature of the deposit of an interpleader stake into the Registry of the Court, the point at which the rights to the stake were asserted, equitable considerations, and the policy behind the U.C.C. provisions," 652 F. Supp. at 548, an award to BP based on a ruling of retroactive unperfection of Paribas's security interest "would be clearly inequitable," id. at 546. The court concluded that since Paribas had a valid, superior interest in the funds when the interpleader action was initiated and the funds were deposited with the district court, Paribas was the rightful owner of the funds. The court observed also that the parties' answers filed with the court put each other and the public on notice of their claims, and that the court was "openly in possession and ...